Owner's take on workers at issue

Published: October 8, 2008

CONCORD - Whether a former area businessman believes workers were his employees or contracted help was the focus of the man's tax evasion trial in U.S. District Court on Tuesday.
Jeffrey Mealey, who owned and operated three temporary help agencies, is charged with failure to pay employment taxes to the Internal Revenue Service for temporary workers hired through the three agencies he ran with Michael Monahan.
Monahan, formerly of Nashua, pleaded guilty in April to charges that included tax evasion, mail fraud and identity theft after dodging more than $2 million in payroll taxes.
The two men ran Industrial Business Services Inc. of Nashua, Practical Business Solutions and Merrimack Temp, all temporary help agencies.
In addition, Mealey, formerly of Hollis, ran the Riverside temporary help company.
The men paid workers in cash and often used the same employees, contracted under the various business names, to work in manufacturing plants. They paid the workers less than the amount they charged the client companies, according to the prosecutor and a witness.
Mealey's lawyer, William Christie, maintains that his client was not obligated to pay employment taxes to the IRS because the laborers were contracted workers.
The law distinguishes between employees and contract workers based on a number of factors. Employers must pay employment tax for employees and also make contributions to Social Security and Medicare.
They are not under the same obligation when they used contracted help.
Christie's opening statements hammered this point.
"There is no requirement under federal law to withhold federal taxes for contract workers," Christie said.
Indeed, a settlement between the temp agency owners and the IRS following an audit in 1999 "only reinforced Jeff Mealey's belief that the laborers were independent contractors," Christie told the jury.
Christie also noted that paying temporary laborers in cash is legal and overseen by the IRS, which requires a report on cash withdrawals in excess of $10,000.
In Monahan's case, the government said the company avoided paying more than $2 million in Social Security and Medicare taxes by understating wages they had paid, which totals more than $13 million.
In addition, the business avoided more than $368,000 in worker's compensation insurance premiums by under-reporting the number of workers they had hired, prosecutors claim.
"All four temporary employment agencies obtained profits by charging client companies an hourly rate that was more than the hourly rate they paid to the laborers," Robert Kinsella, assistant U.S. attorney, told the jury in his opening statements.
He said the four temp agencies submitted a single invoice to each client company, stating the amount owed for a particular period.
Monahan deposited checks from the various companies in separate bank accounts established for each of the four companies, and after each deposit was posted, wrote checks to cash that were often worth up to $100,000, according to the prosecutor.
During key testimony Tuesday, Scott Davidson, a former employee and the defendant's cousin who was granted immunity from prosecution, said the company was contracting with workers, not hiring them as employees.
Davidson said the companies charged client factories more per worker than they paid the workers and that the majority of laborers were Cambodian, Laotian and Vietnamese immigrants from the Lowell, Mass., area.
He also said the owners kept time slips with names and worker identifications that he was asked to collect, but he declined "because I felt the information being collected was false."
During cross-examination by Christie, however, Davidson said he believed, and still believes, that the company was contracting with workers, not hiring them as employees.
In a discussion in the courtroom after the jury was dismissed, Judge Steven McAuliffe told the government's attorney that the heart of the matter is, "Whose burden is it?"
There was no discussion of best practices in the temporary help industry, nor was it clear if other temp agencies operate similarly, contracting with, rather than employing the workers they provide to client businesses.
Mealey, who lives in Sugar Hill with his wife and three children, formerly resided at 11 Nevins Road in Hollis. His trial was resuming today at 9 a.m.